Wharton on Making Decisions - Review

HR Magazine, August, 2001

By Stephen J. Hoch and Howard C. Kunreuther with Robert E. Gunther John Wiley & Sons, 2001

339 pages

List Price: $29.95

ISBN: 0-471-38247-7

"Did you ever have to make up your mind?" the old song asks. If you work in management, the answer is a resounding "Yes." In Wharton on Making Decisions, authors/editors Stephen J. Hoch, Howard C. Kunreuther and Robert E. Gunther of the University of Pennsylvania's Wharton School present 17 essays documenting thinking on decision-making and suggesting models for weighing choices.

Wharton on Making Decisions compiles monographs on organizational psychology, management theory and statistical analysis. In the book's opening chapter, Hoch and Kunreuther observe that there are three contexts in which a manager can make a decision. First and foremost is as an individual-- "influenced by emotions, intuitions and focused on present versus future consequences." Decisions also often are made from the perspective of a manager, with choices that are arrived at using models designed to balance speed with reflection. Finally, the authors observe, some decisions are made in the context of multiparty interactions. Here, decisions often are reached with an eye toward building consensus and reputations.

To illustrate how bad decision-making can doom an organization, Hoch and Kunreuther document the 1995 collapse of Barings Futures Singapore. The firm declared bankruptcy after one of its investment bankers lost over a billion dollars in poor investments. After chronicling the barrage of bad decisions that led to Barings' demise, the authors describe the archetypal errors that the bank's managers made, including:

* Being blinded by personal feelings.

* Relying too much on intuition.

* Placing too much emphasis on speed.

* Underestimating risk.

The Barings incident underscores how workplace decisions can have a wide-reaching impact on society. In their chapter titled "Values and Decisions," Julie Irwin of the University of Texas and Jonathan Baron of the University of Pennsylvania say that there is often a disconnect between the decisions people make and the "protected values" they hold. The authors define these values as being "protected from trade-offs." To help incorporate these values into decision-making analyses, they suggest that managers:

* Explore decisions from a variety of different perspectives.

* Challenge protected values by asking about conflicts.

* Recognize that extreme positions are untenable.

* Understand the marketing worth of protected values.